Group Rating Methodology

General Criteria:

Group Rating MethodologyJuly 1, 2019

OVERVIEW AND SCOPE1. This article describes S&P Global Ratings' methodology for rating entities that are part of

corporate, financial institutions, insurance, and international public finance groups, as well asU.S. public finance obligated groups. For the related guidance article, see "Guidance: GeneralCriteria: Group Rating Methodology."

2. These criteria articulate the steps in determining an issuer credit rating (ICR) on group membersand their holding companies. This involves assessing the group credit profile (GCP; i.e. the group'soverall creditworthiness), the stand-alone credit profiles (SACP) of group members, and the statusof an entity relative to other group entities.

3. The criteria also describe how we assess the potential for support (or negative intervention) fromgroup entities, or from other external sources such as a government.

4. These criteria apply to corporate, financial institution, insurance, and international public financeentities that we consider part of a group and U.S. public finance entities that we consider part ofan obligated group. For these entities, we believe that their ownership, control, influence, orsupport by or to another entity could have a material bearing on their credit quality. Examples ofentities that are outside the scope of these criteria include project finance and corporatesecuritizations.

5. These criteria may complement other criteria that address sector-specific support considerations.

6. This methodology follows our request for comment, "Request for Comment: Group RatingMethodology," published Dec. 12, 2018.

Key Publication Dates

- Original publication date: July 1, 2019

- Effective date: Immediately, except in those markets that require prior notification toand/or registration by the local regulator, where the criteria will become effective whenso notified by S&P Global Ratings and/or registered by the regulator.

- These criteria address the fundamentals set out in "Principles Of Credit Ratings."

General Criteria:

Group Rating MethodologyJuly 1, 2019

ANALYTICAL CONTACTS

Craig A Bennett

Melbourne

(61) 3-9631-2197

[email protected]

HongTaik Chung, CFA

Hong Kong

(852) 2533 3597

[email protected]

Dan Picciotto, CFA

New York

(1) 212-438-7894

[email protected]

Ivana L Recalde

Buenos Aires

(54) 114-891-2127

[email protected]

CRITERIA CONTACTS

Mark Button

London

(44) 20-7176-7045

[email protected]

Peter Kernan

London

(44) 20-7176-3618

[email protected]

See complete contact list at end of article.

www.spglobal.com/ratingsdirect July 1, 2019 1

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METHODOLOGY7. These criteria explain how we factor the potential for extraordinary support (or extraordinary

negative intervention) into the ICR of an entity that is a member of a group. Such extraordinarysupport (or negative intervention) is beyond that which we already factor into the entity's SACP, asexplained in "Stand-Alone Credit Profiles: One Component Of A Rating."

8. We factor the potential for extraordinary support or extraordinary negative intervention into theICR even when the need for such support or the possibility for such negative intervention mayappear remote.

9. We apply a six-step process for determining the ICR of group members (see chart 1), as follows:

(i) Identify the group parent and the group members (together called the group).

(ii) Assess the creditworthiness of the group (or subgroup) to determine a group SACP and GCP.The potential GCP is based on the group SACP, adjusted for potential external sources ofextraordinary support if we believe such support will be extended to the group, or potentialextraordinary negative intervention. Finally, we apply any relevant sovereign constraints todetermine the GCP (see chart 2). See "Ratings Above The Sovereign—Corporate And GovernmentRatings: Methodology And Assumptions."

(iii) Assess the group status of each group member to be rated, if relevant.

(iv) Determine the SACPs of group members to be rated, if relevant.

(v) Assign a potential (indicative) ICR to group members. The potential ICR is based on the entity'sSACP, if relevant, and the potential for extraordinary support (or extraordinary negativeintervention). Extraordinary support is the higher of any group or government influence, or otherexternal support factors (such as additional loss-absorbing capacity (ALAC) support or aguarantee). This step also factors in the degree of insulation, if any, that a group member has frompotential negative influence by other weaker group entities.

(vi) Assign the final ICR after taking into consideration any relevant sovereign constraints (see"Ratings Above The Sovereign—Corporate And Government Ratings: Methodology AndAssumptions").


General Criteria: Group Rating Methodology



10. These criteria define five categories of group status: core, highly strategic, strategically important,moderately strategic, and nonstrategic. These categories indicate our view of the likelihood that agroup member will receive extraordinary support from the group (see table 1).

Table 1

Summary Of Associating An Entity's Group Status With A Potential ICR

Group status Brief definition Potential ICR*

Core Integral to the group's current identity and futurestrategy. The rest of the group is likely to support theseentities under any foreseeable circumstances.

GCP

Highly strategic Almost integral to the group's current identity and futurestrategy. The rest of the group is likely to support thesegroup members under almost all foreseeablecircumstances.

One notch lower than the GCP, unless theSACP on that entity is equal to, or higherthan, the GCP. In such a case, thepotential ICR is equal to the GCP.

Strategicallyimportant

Less integral to the group than "highly strategic" groupmembers. The rest of the group is likely to providesupport in most foreseeable circumstances. However,some factors raise doubts about the extent of groupsupport.

Three notches above SACP. This issubject to a cap of one notch below theGCP, unless the SACP is at least equal tothe GCP, in which case the potential ICRis equal to the GCP.



Table 1

Summary Of Associating An Entity's Group Status With A Potential ICR (cont.)

Group status Brief definition Potential ICR*

Moderately strategic Not important enough to warrant support from the restof the group in some foreseeable circumstances.Nevertheless, there is potential for some support fromthe group.

One notch above SACP. This is subject toa cap of one notch below the GCP, unlessthe SACP is at least equal to the GCP, inwhich case, the potential ICR is equal tothe GCP.

Nonstrategic No strategic importance to the group. SACP, subject to a cap defined by theGCP.

* The above conventions do not apply where: potential ICRs exceed the GCP due to insulation (see "Insulated Entities" section); the group SACPis used to determine uplift for group support (see "External support factors in the GCP" section); the GCP is 'ccc+' or lower (see paragraph 13);and when paragraph 42 applies.

11. A potential ICR on a group member that exceeds its SACP reflects our view of the likelihood of thatentity, in a credit-stress scenario, receiving timely and sufficient group or government support(beyond that already factored into the SACP), thereby strengthening its creditworthiness.Examples of support include additional liquidity or capital to the group member, or one-offtransfers of risk from the group member.

12. A potential ICR on a group member that is lower than its SACP reflects our view that if the group orrelevant government were in a credit-stress scenario, the group or government would drawresources from the group member (an example of extraordinary negative intervention), therebyweakening its creditworthiness.

13. If the GCP is 'ccc+' or lower, the potential ICR on a group member cannot be lower than 'b-' unlessthe conditions for a potential ICR of 'ccc+' or lower are met (see "Criteria For Assigning 'CCC+','CCC', 'CCC-', And 'CC' Ratings," henceforth referred to as "CCC criteria"). The potential ICR wouldinclude the potential for extraordinary negative intervention from the group or government.

Identifying The Group And Its Members14. For the purposes of these criteria, the term "group" refers to the group parent and all the entities

(also referred to as group members) over which the group parent has direct or indirect control.

15. The group parent is not necessarily the ultimate holding company in the group structure but is thetop entity in the structure that we believe is relevant to the group's credit quality. Accordingly,additional holding companies may exist above the group parent, but be excluded from our groupassessment if we believe they have no material liabilities or operating assets and therefore nobearing on the group's overall credit quality. The control chain may include several successivelayers of controlling or joint-control interest in other entities. We would generally not consider anatural person, or entities such as family firms, foundations, managed fund, or financial sponsors,to be a group parent. Where we determine that an entity (for instance, an investment holdingcompany) does not have control of an investee company, we do not consider that entity to be thegroup parent.

16. "Control" refers to the ability to direct a group member's strategy and the disposition of its cashflow. Control may be present even if the group owns 50% or less of the group member'sshareholder capital.

17. We generally apply this methodology to an entire group, but may also apply it to a distinctsubgroup. A subgroup focus may be appropriate when the subgroup and its components have adistinct credit profile that is separate from that of the broader group. This could be due to factors



such as jurisdictional location, regulatory oversight, or support factors that apply only to thesubgroup. References to the term "group" in this methodology can apply to either a subgroup or agroup viewed in its entirety.

The Group SACP And Group Credit Profile (GCP)18. The group SACP and GCP are our opinions of a group's creditworthiness as if it were a single legal

entity (subject to any potential restrictions on cash flows associated with insulated entities).

19. The group SACP and GCP are not ratings. They are components contributing to the determinationof the ICRs on group members. The group SACP does not take into account sources of potentialextraordinary support or negative intervention that we consider external to the assessed group.However, the potential GCP incorporates extraordinary external support that we believe isavailable to the group, or conversely, extraordinary negative intervention. Finally, the GCP takesinto consideration any relevant sovereign constraints. See "Ratings Above TheSovereign—Corporate And Government Ratings: Methodology And Assumptions."

20. Group SACPs and GCPs range from 'aaa' (the highest assessment) to 'd' (the lowest assessment),on a scale that parallels the ICR ('AAA' to 'D'). The lowercase letters indicate their status as acomponent of a rating rather than as a rating. Like ICRs, group SACPs and GCPs can carry themodifier "+" or "-". Typically, a group SACP or GCP is 'd' only in the case of a generalized groupdefault. In the case of a legal entity within a group, we lower the ICR on that entity to 'D' or 'SD'(selective default) only if we determine the entity is in default (see "S&P Global RatingsDefinitions").

21. To determine the group SACP and GCP, we assess the consolidated group using the relevantsector methodologies. The assessed group includes all group entities that we believe have abearing on the group's credit quality (as per the explanation detailed in the section "IdentifyingThe Group And Its Members"), and may potentially deconsolidate insulated entities as per the"Insulated Entities" section. We typically conduct the assessment of the group SACP and GCP asthough the group were a single legal entity.

22. For cross-sector groups (including their holding companies), the specific rating methodologyapplied to assess the group SACP is the one relevant for the operations that most stronglyinfluence the group's credit profile. This influence can reflect the amount of capital employed,level of earnings, cash flow, dividend contribution, or other relevant metric. However, where theanalysis of consolidated financial statements using a single sector's criteria framework may notproduce a meaningful picture of credit quality, we may apply a combination of ratingmethodologies to assess the group SACP. This may be done by applying the relevantmethodologies to determine SACPs for the different group members. We would then aggregatethese SACPs to derive the overall group SACP. The group SACP would also include adjustments toaccount for any benefits or risks not captured in the aggregation of the component SACPs.

a) Multiple ownership and joint ventures23. If a group member is under the joint control of at least two parents--for example, a joint venture

(JV)--the insolvency or financial difficulty of one parent may have less impact than if the entity hada single parent.

24. For JVs, we may attribute support from one of its owners (JV partner) even if the JV partner doesnot have majority ownership in the JV. We typically attribute support from the JV partner thatwould result in the highest potential ICR on the JV. This would apply where we believe the JVpartner would support the JV, regardless of the actions of the other owners. This could include



situations where that JV partner makes day-to-day business decisions, or the JV is of criticalimportance to the supporting JV partner's operations or strategy. In such cases, however, thegroup status of the JV to the JV partner would typically not exceed strategically important. Inaddition, we would also take the potential resource demands of the JV on the JV partner intoconsideration when determining the JV partner's credit profile.

25. The analytical approach for a group's jointly owned business operations, such as whether to fullyconsolidate, partially consolidate, or equity account the operations when assessing the groupSACP, is determined by the relevant methodologies for assessing corporates, financialinstitutions, insurance companies, or other entity types.

26. In cases where a shareholder agreement or similar arrangement exists that we believe wouldprevent an otherwise controlling parent from directing the strategy and cash flows of a groupmember, we may assess that control is not present. When we determine control is not present, wewould typically treat the member as an equity affiliate and consider only the projected dividendflows from that member in our group SACP assessment.

b) Insulated entities27. Where we determine that consolidating an insulated group member does not adequately capture

the impact on the group SACP of any material restrictions on cash flows or financial resourceswithin the group, we either:

- Adjust the group SACP down (typically by one or two notches); or

- Treat an insulated group member as an equity affiliate, and reflect this deconsolidatedapproach in determining the group SACP.

28. When assessing a group that has a bank subsidiary with a potential ICR that is above the GCPeither because it is of high systemic or moderate systemic importance (as per "Banks: RatingMethodology And Assumptions"), in the country where it is domiciled, or because of ALAC support,the group SACP will take into account the impact of any local restrictions on the flow of capital,funding, and liquidity, and any implications for the business and risk positions of the parent.

c) Entities owned by a financial sponsor29. If the owner of a group entity is a "financial sponsor" (see Glossary), the potential ICR on that

group entity does not directly factor in the likelihood of support from the financial sponsor, nor is itdirectly constrained by our view of the financial sponsor's creditworthiness. However, the financialsponsor's ownership may still affect the potential ICR through the application of the relevantsector-specific criteria.

30. The group SACP for a group owned by a financial sponsor may, however, include one or moreintermediate holding companies of the operating entity, but would exclude the financial sponsor'sown financials and its other holdings. This approach reflects our view that an intermediate holdingcompany's primary purpose is to acquire, control, fund, or secure financing for its operatingcompanies, and is generally reliant on those companies' cash flow to service its financialobligations.

d) U.S. public finance obligated groups31. U.S. public finance obligated groups typically consist of a group of entities that are

cross-obligated as security for specific debt. Obligated group structures are most commonly used



by not-for-profit hospitals, health systems, and senior living organizations.

32. Obligated groups are created for purposes of securing debt, and do not have operating orgovernance independence from the larger group. While debt covenants may contain somerestrictions, for example limitations on the transfer of assets out of the obligated group,covenants are generally not strong enough to insulate the obligated group from the strategic andoperating influence of the group. An obligated group, therefore, is typically not rated higher thanthe GCP.

33. Individual obligated group members may have separate legal incorporation and varying strategicvalue to the group. However, since the purpose of the obligated group is to secure debt on a jointand several basis, group status will be determined for the obligated group as a whole, not for itsindividual members. In applying these criteria, we consider obligated groups a single entity.

34. Most U.S. public finance ratings are issue ratings, although we sometimes assign ICRs. The issuerating could differ from the ICR based on the specific security package for the rated bonds. Weexpect that, barring subordination or structural enhancement, U.S. public finance issue ratingswill generally be the same as the ICR.

e) External support factors in the GCP35. Government support. The potential for extraordinary government support can be factored into

either the ICRs of certain group members or the GCP, depending on the nature of this support (seeRating Government-Related Entities: Methodology And Assumptions [GRE criteria], and Banks:Rating Methodology And Assumptions). We use the group SACP as a basis from which todetermine the GCP when using the government support tables in the GRE criteria or bank criteria.

36. The assessment considers whether government support, driven by GRE status or systemicimportance, would likely accrue to all or only some members of the group (see table 2).

37. To determine the potential ICR for a particular group member, where the assessment indicatesthat the government:

- Is likely to extend such extraordinary support directly to that entity (bypassing the group), anyuplift for such support is added to the SACP of that entity in determining the potential ICR;

- Is likely to extend such extraordinary support indirectly, via the group, to the entity, thereference point for determining any uplift for group support (or negative group intervention) isthe GCP (which would include uplift, if any, for extraordinary government support); or

- Is unlikely to extend such extraordinary support to the entity, the reference point fordetermining any uplift for group support is the lower of the group SACP or the GCP.



Table 2

Rating Government-Supported Entities--Likelihood Of Government Support VersusGroup Support

SACP level

If the subsidiary is likely to benefitdirectly from extraordinarygovernment support *

If the subsidiary is likely to benefitfrom extraordinary governmentsupport indirectly through the group

If the subsidiary is unlikelyto benefit fromextraordinary governmentsupport either directly orindirectly

SACP islower thanthe groupSACP

Potential ICR = Higher of (i) the SACPplus uplift for government support, or(ii) SACP plus uplift for group support.The outcome is subject to a cap at thelevel of the GCP (unless the subsidiaryis insulated).

Potential ICR = SACP plus uplift forgroup support (with reference to theGCP)

Potential ICR = SACP plusuplift for group support (withreference to the lower of thegroup SACP or the GCP)

SACP ishigher thanor equal tothe groupSACP

Potential ICR = SACP plus uplift forgovernment support, subject to a capat the level of the GCP (unless thesubsidiary is insulated)

If SACP < GCP, potential ICR = SACPplus uplift for group support (withreference to the GCP). If SACP >= GCP,potential ICR = SACP, subject to a capat the level of the GCP (unless thesubsidiary is insulated).

Potential ICR = SACP,subject to a cap at the levelof the GCP (unless thesubsidiary is insulated)

No SACP SACP required, unless subsidiary is aGRE with almost certain likelihood ofgovernment support*

If core, potential ICR = GCP. If highlystrategic, potential ICR = GCP - 1.

If core, potential ICR = lowerof the GCP or group SACP. Ifhighly strategic, potentialICR = lower of the GCP - 1 orgroup SACP - 1.

* See GRE criteria for further details, including when an SACP is not required for entities with almost certain likelihood of government support.SACP--Stand-alone credit profile. ICR--Issuer credit rating.

38. ALAC support. The potential for extraordinary external ALAC support can be factored into eitherthe ICRs on certain group members or the GCP, depending on the nature of this support (see "BankRating Methodology And Assumptions: Additional Loss-Absorbing Capacity"). To determine thepotential ICR on a particular group member, where the assessment indicates that ALAC support inthe GCP:

- Is likely to extend indirectly, via the group, to the entity, the reference point for determining anyuplift for group support (or negative group intervention) is the GCP; or

- Is unlikely to extend to the entity, the reference point for determining any uplift for groupsupport is the lower of the group SACP or the GCP.

Assigning The Issuer Credit Rating39. A potential ICR on a group member reflects its SACP (if relevant) and the potential for external

extraordinary support (or negative intervention). We then determine the final ICR by applying anyrelevant sovereign constraints to the potential ICR.

40. We determine the potential ICR as follows, unless paragraph 41 applies:

- Core group entity is equal to the GCP;

- Highly strategic entity is one notch lower than the GCP, unless the SACP on that entity is equalto, or higher than, the GCP. In such a case, the potential ICR is equal to the GCP;

- Strategically important entity is rated three notches higher than its SACP. This is subject to a



cap of one notch below the GCP, unless the SACP is at least equal to the GCP, in which case thepotential ICR is equal to the GCP;

- Moderately strategic entity is rated one notch higher than that entity's SACP. This is subject toa cap of one notch below the GCP, unless the SACP is at least equal to the GCP, in which case,the potential ICR is equal to the GCP; or

- Nonstrategic entity is rated the same as that entity's SACP, subject to a cap defined by the GCP.

41. The above conventions do not apply where: the potential ICR exceeds the GCP due to insulation(see "Insulated Entities" section); the group SACP is used to determine uplift for group support(see "External support factors in the GCP" section); the GCP is 'ccc+' or lower (see paragraph 13);or when paragraph 42 applies.

42. We may apply a one-notch adjustment to determine the potential ICR (as described in paragraph40) to better reflect our holistic view of potential extraordinary group support. This adjustment isonly applicable if we have determined an SACP and the gap between the potential ICRs, based ongroup status assessments of highly strategic and strategically important, is at least threenotches. The adjustment, if applicable, is as follows:

- When the group status is highly strategic, we may apply a negative one-notch adjustment. Thepotential ICR could, therefore, be two notches lower than the GCP rather than one notch; or

- When the group status is strategically important, we may apply a positive one-notchadjustment. The potential ICR could, therefore, be four notches higher than its SACP ratherthan three notches.

- For example, if we determine an entity exhibits characteristics consistent with a highlystrategic entity, while a change in group status to strategically important could lead to apotential ICR change of three notches, the potential ICR could be two notches below GCP whilethe group status remains highly strategic; alternatively, if we determine the entity now exhibitscharacteristics consistent with a strategically important entity, we will revise the group statusto strategically important and the potential ICR could be four notches above the SACP.

Group Status Of Individual Members

43. A group member's group status reflects the extent and timeliness of extraordinary support weexpect it will receive from the rest of the group when that entity is under credit stress. We may alsoassess a group member's group status to a subgroup and the group status of a subgroup to abroader group. This section describes the framework that supports the classification of amember's group status into one of five categories:

- Core;

- Highly strategic;

- Strategically important;

- Moderately strategic; or

- Nonstrategic.

44. The determination of an SACP for a group member categorized as core or highly strategic is notnecessary unless otherwise required or analytically relevant. A group status is not necessary forinsulated entities, unless otherwise required or analytically relevant.



a) Core entities45. A core entity exhibits features highly consistent with the group's franchise, supports the

realization of group strategic objectives, and is expected to attract extraordinary support, ifrequired, under any foreseeable circumstance. A core entity would also generally be expected toexhibit all the following characteristics:

- Is highly unlikely to be sold;

- Operates in lines of business or functions (which may include group risk management andfinancing) that are very closely aligned with the group's mainstream business and customerbase. The entity also often operates in the same target markets;

- Has a strong, long-term commitment of support from the group in benign and under stressfulconditions, or incentives exist to induce such support (e.g., cross-default clauses in financingdocuments, or the entity plays an integral role in group risk management or financing);

- Is reasonably successful at what it does or does not have ongoing performance problems thatcould result in underperformance against the group's specific targets and group earningsnorms over the medium to long term;

- Either constitutes a significant proportion of the consolidated group or is fully integrated withthe group;

- Is closely linked to the group's reputation, name, brand, or risk management;

- Has typically been operating for about five years or more; and

- Has been established as a separate entity for legal, regulatory or tax reasons, but otherwiseoperates more as part of a profit center or division integral to the group.

b) Highly strategic entities46. A highly strategic group entity generally exhibits almost all of the characteristics of a core entity,

and differs only narrowly regarding the extent of expected extraordinary support from the group.An entity assessed as highly strategic is generally expected to have a long-term commitment fromthe group. There may be situations in which support for the highly strategic entity will be limited,for instance, to preserve the viability of core entities of the group.

c) Strategically important entities47. We assess an entity as strategically important when we expect it to receive extraordinary support

from the group in most foreseeable circumstances; however, there are some doubts about theextent of group support that precludes it from a higher support category. Strategically importantsubsidiaries would however typically exhibit all the following characteristics:

- Is unlikely to be sold;

- Is important to the group's long-term strategy;

- Has the long-term commitment of the group, or incentives exist to induce such support (e.g.,cross-default clauses in financing documents); and

- Is reasonably successful at what it does or has realistic medium-term prospects of successrelative to the group's specific expectations or group earnings norms.



d) Moderately strategic entities48. When an entity does not exhibit the characteristics for a higher level of group support, but we

expect it to receive extraordinary support in some foreseeable circumstances, it is typicallyconsidered moderately strategic. Moderately strategic entities are also typically important to thegroup's long-term strategy or are (or are expected to become) reasonably successful at what theydo.

e) Nonstrategic entities49. When an entity does not exhibit the characteristics of core, highly strategic, strategically

important, or moderately strategic, it is categorized as nonstrategic.

Captive (re)insurer50. A captive (re)insurer may also be assessed as core if it sources its (re)insurance business from

companies within the group and writes no, or an immaterial amount, of third-party business. Acaptive (re)insurer may also be assessed as highly strategic if third-party business is a modestportion of its overall business operations.

Captive finance51. When assessing group status for captive finance subsidiaries, the attributes we examine to

determine group status should be considered within the context of all the following unique factorsthat captive finance subsidiaries typically provide to their group's marketing efforts:

- The percentage of the group's products sold via the subsidiary (penetration rate). For diversifiedgroups, the percentage of total sales may be less important than the percentage of certainspecific product lines. In turn, we consider the importance of these products to the overallperformance of the group;

- The alternatives available to sell the group's products; and

- The costs and challenges in conducting its own financing. For some entities, funding costs mayoutweigh the benefits--or it may become difficult to gain access to capital.

Branches52. For financial services entities, a branch is part of a legal entity that is typically at another

geographic location. A branch therefore has the same creditworthiness as the legal entity, unlessthe branch is in another country and the actions of that sovereign could affect the branch's abilityto service its obligations. See "Ratings Above The Sovereign--Corporate And Government Ratings."With respect to financial institutions, see also "Assessing Bank Branch Creditworthiness."

U.S. public finance obligated groups53. U.S. public finance obligated groups could be considered core if they contain the majority of the

organization's primary operating facilities, such as its hospitals or senior living facilities.



Financing subsidiaries54. A financing subsidiary of a financial institution or corporate group may be assessed as core when

it plays an integral role in group financing, its sole activity is to raise debt on behalf of the group,and it is wholly owned. Such subsidiaries often share a related corporate name with their parents.

55. A financing subsidiary of an insurance group, while generally not assessed as core, is typicallyassigned a rating as if it is a holding company.

Credit-substitution guarantee of group entities56. When all of a group member's present and future financial obligations are guaranteed, and the

guarantor is obliged to pay that group member's obligations even if the group member defaults,we assign a rating to the group member that reflects the higher of two outcomes:

- A rating reflecting the creditworthiness of the group member absent the benefit of theguarantee; or

- A rating reflecting the creditworthiness of the guarantor (see "Guarantee Criteria").

57. Our assessment of the terms of any intragroup guarantees determines whether a payment defaulton the part of a group entity is viewed as a default by the guarantor (see "General Criteria:Guarantee Default: Assessing The Impact On The Guarantor's Issuer Credit Rating").

Loan participation notes (LPNs)58. We rate LPNs and equivalent securities (such as trust preferred) issued by a special-purpose

vehicle (SPV) on behalf of a corporate, financial institution, or insurance entity (including theirholding companies) at the same level as we would rate an equivalent-ranking debt of itsunderlying borrower (the LPN sponsor) (and treat the contractual obligations of the SPV asfinancial obligations of the LPN sponsor) provided that all the following conditions are met:

- All of the SPV's debt obligations are backed by equivalent-ranking obligations with equivalentpayment terms issued by the LPN sponsor;

- The SPV is a strategic financing entity for the LPN sponsor set up solely to raise debt on behalfof the LPN sponsor's group; and

- We believe the LPN sponsor is willing and able to support the SPV to ensure full and timelypayment of interest and principal when due on the debt issued by the SPV, including paymentof any expenses of the SPV.

59. As a consequence, we assign a 'D' or 'SD' ICR to the LPN sponsor if the SPV fails to make paymentson the debt when due, as we would typically do in case of default on a similarly ranking debtissuance of the LPN sponsor (see also "Methodology: Timeliness Of Payments: Grace Periods,Guarantees, And Use Of ‘D’ And ‘SD’ Ratings").

60. For multiple LPN sponsor SPVs, or SPVs that do not meet all the conditions above, the relevantstructured finance criteria apply, which may include "Asset Isolation And Special-Purpose EntityCriteria—Structured Finance" and "Global Methodology For Rating Repackaged Securities."



Dedicated supplier/purchaser relationships61. Group members are typically owned or controlled by the group parent. However, a dedicated

supplier/purchaser relationship can create an economic incentive for the supplier to support thepurchaser, despite having only a minority ownership interest or none at all. We define the group inthis instance as the supplier and the purchaser. A supplier may provide support sufficient for thepurchaser to be considered moderately strategic to the supplier when the purchaser comprises ameaningful portion of the supplier's sales, cash flow, volume, or other measure. Suchrelationships typically have all the following characteristics:

- The term of the supplier/purchaser agreement is either perpetual or long term;

- There is evidence of the supplier's willingness and ability to provide financial support to thepurchaser. We determine this by looking at prior loans, capital investments, or marketingsupport given to the purchaser; and

- The purchaser is closely linked to the supplier's reputation, name, or brand.

Entities with interlocking business relations62. We can apply this methodology to groups of entities with interlocking business relations even in

the absence of control, as defined in the criteria. Group membership will be based on meeting atleast four of the following conditions:

- Name affiliation;

- Common management;

- Common board composition or common board control;

- Shared corporate history;

- Common business ties;

- Common financing of group entities;

- Shared corporate support functions; or

- Cross ownership holdings.

In such cases, we determine the GCP by considering the group members' SACPs. Members of thistype of group can only be assigned a group status of strategically important, moderately strategic,or nonstrategic.

Insulated Entities63. Financial stress within the group can negatively affect the creditworthiness of group entities.

Accordingly, in such cases a potential ICR on an entity is typically limited by the GCP. This isnotably because:

- The group could potentially transfer assets from one group entity to another during financialstress, contributing to credit stress at other group entities;

- The distress at the group could trigger business or financial difficulties at the group member.For instance, the group's problems could cause reputational damage of the group member and



a loss of business;

- The group member might rely on operational support from the group on an ongoing basis; and

- In some jurisdictions, a bankruptcy petition by one group entity could include or cause othergroup entities to go into bankruptcy or similar measures.

64. Some entities (which for the purposes of this section, could also apply to a subgroup) may beinsulated, segmented, or ring-fenced from their group, from a credit risk perspective. Suchinsulation may lead to the rating on the entity being higher than the GCP. The lower the likelihoodthat the creditworthiness of the entity would be impaired by a credit stress scenario for the group,the greater the potential difference between the potential ICR on the entity and the GCP.

65. The potential ICR of an insulated entity is one notch higher than the GCP in cases where the entityis operationally separated from the group and the entity's SACP (or the SACP plus the potential forgovernment support or ALAC) is at least one notch higher than the GCP. Key characteristics of anoperationally separated entity would generally include all of the following:

- The entity holds itself out as a separate entity, its financial performance and funding are highlyindependent from the group, it has no significant operational dependence on other groupentities, and it maintains its own records and funding arrangements and does not comminglefunds, assets, or cash flows with them;

- There is a strong economic basis for the group to preserve the entity's credit strength; and

- We do not expect a default of other group entities to directly lead to a default of the insulatedentity.

66. The potential ICR of an insulated entity is two notches above the GCP if, in addition to beingeligible for one notch of insulation, the group's control of the entity is limited by independentparties, and the entity's SACP (or the SACP plus the potential for government support or ALAC) isat least two notches above the GCP. Limited control would generally be characterized by at leastone of the following:

- There are significant minority shareholders with an active economic interest;

- Independent directors have effective influence on decision making, including dividend policyand bankruptcy filings; or

- There are strong legislative, regulatory or similar restrictions that would inhibit the entity fromsupporting the group to an extent that would unduly impair the entity's stand-alonecreditworthiness.

67. The potential ICR on an insulated entity is three notches above the GCP if, in addition to the entitybeing eligible for two notches of insulation, there are material structural safeguards to protect theentity from group influence, and the entity's SACP (or the SACP plus the potential for governmentsupport or ALAC) is at least three notches above the GCP. Structural safeguards that protect theentity from group influence would generally include at least one of the following:

- The regulator or appropriate legislative body is expected to act, or has acted, to protect thecredit quality of the entity, for example to prevent the entity from supporting the group to anextent that would in turn impair its stand-alone creditworthiness;

- There are both: protective governance arrangements (such as independent directors with aneffective influence on decision making); and either significant minority shareholders or jointventure partners, with an active economic interest;



- There is an independent trustee or equivalent governance arrangement that can enforce therights of third parties, and we expect the trustee (or equivalent) to act upon that right; or

- The government or other governmental agency (i) has the authority to change ownership of theentity via existing legislation or other legal powers to separate it from a troubled group; and (ii)we expect it to act upon that right, based, for example, on a statement of intent to do so, or atrack record of proactive stress management under similar circumstances.

68. The potential ICR of an insulated entity could be de-linked and therefore not constrained by thecreditworthiness of the group if the conditions in either (a) or (b) are met:

(a) In addition to being eligible for three notches of insulation as described in the precedingparagraph:

- We believe that the parent company doesn't exert control due to substantial creditorprotections and as a result is unable to adversely impact the entity's credit quality; and

- The entity benefits from governance constraints that severely limit the influence of the parent,preventing it from determining matters such as strategy, material change of business, dividendpayments and other material cash flows, and bankruptcy filings. These may arise, for example,due to statutory powers or contractual constraints.

(b) We determine that there is sufficient evidence that significant group credit stress has hadminimal impact on the entity's credit profile, and that we do not expect it to have a materialnegative influence going forward.

69. With respect to our assessment of insulation of captive finance subsidiaries, we could view acaptive finance entity as operationally separated from the group when it is able to stand on its ownby taking over or subcontracting certain functions previously provided by other group entities.Given the nature of a captive finance entity's business model, we would expect it to retaincommercial ties with its group.

70. The potential ICR of a bank subsidiary is typically not subject to a cap linked to the GCP whereeither: (i) the entity's SACP plus the potential for government support is above the GCP because itis of high systemic or moderate systemic importance (according to "Banks: Rating Methodologyand Assumptions"), in the country where it is domiciled; or (ii) the entity's SACP plus the potentialfor ALAC support is above the GCP (see ALAC criteria). However, where we expect the nature andextent of extraordinary negative group intervention could impact the entity's creditworthiness,although to an extent sufficiently limited that a cap linked to the GCP would not apply, we mayapply a one-notch negative adjustment when determining the potential ICR. This adjustment is tobetter capture our holistic view of potential extraordinary negative group intervention.

Holding Companies71. For holding companies of corporate groups and nonregulated nonbank financial institutions, the

ICR is typically the same as the GCP. For intermediate holding companies of corporate groups andnonregulated nonbank financial institutions, the ICR is typically the same as the rating on its coreoperating entities.

Holding companies of prudentially regulated financial services groups72. Holding companies are typically reliant on dividends and other distributions from operating

companies to meet their obligations. The rating of holding companies of prudentially regulated



financial services groups reflects the difference in their creditworthiness relative to the group'soperating entities. The rating differential is mainly due to the increased credit risk that arises frompossible regulatory constraints to upstream resources and potentially different treatment under adefault scenario.

73. For holding companies of prudentially regulated financial institution groups, the ICR is generally:

- One notch lower than the GCP if the GCP is 'bbb-' or higher; or

- At least two notches lower than the GCP if the GCP is 'bb+' or lower.

74. For holding companies of insurance groups, the ICR is generally:

- Two notches lower than the GCP if potential regulatory restrictions to payments are consideredlow in jurisdictions accounting for the majority of distributions (typically as measured bydividends, cash flows, or earnings) from operating entities to the holding company; or

- Three notches lower than the GCP if potential regulatory restrictions to payments areconsidered high in jurisdictions accounting for the majority of distributions (typically asmeasured by dividends, cash flows, or earnings) from operating entities to the holdingcompany.

75. The notching from the GCP to derive the ICR of a holding company of a financial services groupmay be narrower than the standard notching in paragraphs 73 or 74, or potentially eliminated, if:

- The holding company directly controls multiple material operating units that are sufficientlydiverse and independent such that the suspension of cash flows from any of its operatingentities would not substantially weaken the holding company's financial position;

- The potential for regulatory restrictions to payments is significantly lower than we typicallyobserve for prudentially regulated entities and is not adequately reflected in the standardnotching;

- The holding company generates sufficient cash flows from its own business activities or fromunregulated operating subsidiaries to meet its obligations; or

- The potential for regulatory restrictions on distributions from operating entities is mitigated byour expectation that the holding company will regularly maintain significant unencumberedcash or high quality liquid fixed income investments to meet its obligations.

76. The notching from the GCP to derive the ICR on a holding company of a financial services groupmay be wider than the standard notching in paragraphs 73 or 74 if:

- The holding company itself carries significant asset or liability risks that are not fully capturedin our standard notching;

- There are elevated liquidity risks at the holding company, most notably when it has significantdebt maturities and other financial obligations relative to its unencumbered cash and liquidassets held or to which is has ready access. For example, high double leverage for a financialinstitution can reflect elevated liquidity risks;

- There are heightened risks of regulatory constraints or other material restrictions to paymentsthat are not adequately captured in the standard notching; or

- The GCP is higher than the group SACP owing to external extraordinary support that is notexpected to accrue to the holding company. In this case, we apply the typical notching from thegroup SACP rather than the GCP.



77. If the GCP is 'b-' or lower, or if notching would otherwise result in a rating of 'CCC+' or lower, theICR on a holding company is no lower than 'B-' unless the conditions for an ICR of 'CCC+' or lowerare met (see "CCC criteria").

78. We typically notch down the ICR on an intermediate holding company of a financial services groupor subgroup from the rating assigned to its core operating entities by applying the same notchingwe would to a holding company of the group. We may, however, narrow the notching or potentiallyeliminate the notching if we expect the group to provide extraordinary support for the subsidiariesof the intermediate holding company by investing in the intermediate holding company. We maywiden the notching if there are additional risks relating to cash flows from its operating entities orrisk relating to the expected extraordinary support from the group.

Rating Group Entities Above The Sovereign79. The general criteria for rating a group member above the relevant sovereign rating, which is

usually the country of domicile of the group member, are in ratings above the sovereign criteria(see Related Criteria).

80. The ICR on a group member is the lower of the potential ICR derived from these criteria or therelevant foreign currency sovereign rating. This would not be the case, however, in the situationsoutlined below, where we determine the group member's ICR as the highest of a, b, or c:

(a) If the group member passes the appropriate sovereign stress test (without considering group orgovernment support), the result from the combination of the potential ICR derived from thesecriteria (excluding uplift for group or government support) and the provisions in our ratings abovethe sovereign criteria;

(b) For a group member where the relevant foreign currency sovereign rating is lower than 'B-', theICR is no lower than 'B-' (unless T&C restrictions in Ratings Above the Sovereign criteria areapplicable) if the conditions for an ICR of 'CCC+' or lower are not met (see "CCC criteria"); or

(c) If we believe the group is willing and able to sufficiently support the group member during thestress associated with a sovereign default, the highest of (i) to (v) below:

- (i) For a group member that has a potential ICR based on a guarantee that meets our creditsubstitution criteria, the potential ICR;

- (ii) For a financial institution or insurance group member that has less than 10% exposure tothe jurisdiction of domicile and we consider the risks (e.g. a deposit freeze or monetary-unionexit) associated with that jurisdiction are immaterial, the potential ICR;

- (iii) For core group members of financial institution groups, the lower of the potential ICRderived from these criteria, or up to two notches above the relevant foreign currency sovereignrating;

- (iv) For core group members of insurance or corporate groups, the lower of the potential ICRderived from these criteria, or three notches above the relevant foreign currency sovereignrating; or

- (v) For highly strategic group members of insurance or corporate groups, the lower of thepotential ICR derived from these criteria, or two notches above the relevant foreign currencysovereign rating.



GLOSSARY81. ALAC: Additional loss-absorbing capacity. These are securities issued by certain prudentially

regulated entities (see Related Criteria) that can absorb losses at or near non-viability--forexample, in the event of a bank resolution, in a way that reduces the risk of the bank defaulting,according to our definitions, on its senior unsecured obligations.

82. Captive finance subsidiary: A captive finance subsidiary (as opposed to a financing subsidiary)provides financing for the purchase of the group's products. (For a full definition, see "The Impactof Captive Finance Operations On Nonfinancial Corporate Issuers").

83. Captive (re)insurer: A member of an insurance, corporate, or financial institutions (FI) group thatmainly insures risks of other group entities. Captive (re)insurers typically show a very high degreeof integration with a group's financial and risk management strategy.

84. Double leverage (for financial institutions only): We define double leverage (DL) for FI groups asholding company investment in subsidiaries divided by holding company (unconsolidated)shareholder equity. Holding companies often issue hybrid capital securities that build regulatorycapital. They invest the proceeds in operating subsidiaries as equity or as similarly structuredhybrid securities. We calculate DL in two ways: (1) with a common equity double-leverage measurethat treats hybrid capital as debt, and (2) with a total equity double leverage measure that treatshybrid capital as equity.

85. Equity affiliate: Also defined in our corporate criteria as "unconsolidated equity affiliates." Theseare entities that are not consolidated in an issuer's financial statements. Therefore, the earningsand cash flows of the affiliate are not typically included in our primary metrics (see "CorporateMethodology").

86. Extraordinary negative intervention: Potential extraordinary negative intervention by one or moremembers of a group. Examples include the extraction of unexpected extraordinary dividends orasset or cash stripping the issuer at the behest of the group to service other obligations of thegroup.

87. Extraordinary support: We consider support as extraordinary when it is entity specific,nonrecurring, and typically related to financial stress at the entity. Examples include but are notlimited to recapitalization with common equity or hybrids, liquidity injections to the groupmember, or one-off transfers of risk from the group member.

88. Financial institution: Entities that are in-scope for our bank and nonbank FI methodologies.

89. Financial services sector: Consists of financial institutions and insurance companies.

90. Financial sponsor: We define a financial sponsor as an owner that does not have a long-termstrategic interest in a company. Rather, the financial sponsor is a financial investment firmprimarily motivated to increase the value of its investment by improving its management, capital,or both, typically with the ultimate goal of liquidating the investment. Financial sponsors include,but are not limited to, private-equity firms, hedge funds, and venture capital firms.

91. Holding company (may also be referred to as a group parent): A legal entity that is the owner of atleast one group member that conducts business activities, though it may not carry out its ownbusiness activities (e.g. a non-operating holding company). A holding company may also provideservices to subsidiaries such as investment and treasury management.

92. Insurance company (or insurers): Entities that are in scope for our insurance ratingsmethodologies.

93. Intermediate holding company: A legal entity that is a group member and legal owner of at least



one other group member that conducts business activities, though it may not carry out its ownbusiness activities.

94. Parent: An entity with controlling or joint-control interest in another entity or a joint venture.

95. Prudentially regulated: This refers to the regulation of a financial services entity by one or moreregulatory authorities who set standards for, among other things, capital adequacy and potentialrestrictions on distributions. We generally regard banks and insurers as prudentially regulatedsectors.

IMPACT ON OUTSTANDING RATINGS96. We are revising our group rating methodology to provide greater clarity and transparency, and

enhance cross-sector consistency. While the underlying fundamentals remain the same, the newcriteria also increases scope for analytical adjustments.

97. The new criteria includes the following analytical changes:

- a greater scope for analytical adjustments in how we determine the group SACP, particularly forcross-sector groups and those with insulated group members;

- a greater scope for analytical adjustments in how we determine the group status of groupmembers;

- the ability to apply a one-notch adjustment for highly strategic and for strategically importantentities for a modest sub-set of issuers where the gap between the GCP and the SACP is atleast seven notches;

- greater alignment in our treatment of insulated entities across sectors;

- a clarifying change to the term "Unsupported GCP" (under the former criteria), which is nowbroadly equivalent to "group SACP" in the new criteria;

- for a group member where the relevant foreign currency sovereign rating is lower than 'B-', wehave established that the ICR can be no lower than 'B-' (unless transfer and convertibilityrestrictions are applicable) if the conditions for an ICR of 'CCC+' or lower are not met;

- for insurers, we have changed the reference point for rating above the sovereign (from localcurrency to foreign currency sovereign rating) and we now allow highly strategic entities to berated up to two notches above the relevant sovereign rating, to bring greater alignment acrosssectors;

- for insurers, we have removed explicit sovereign limitations for branches and guaranteedentities to enhance cross-sector consistency;

- we have provided greater scope for analytical adjustments to widen or narrow notching ofholding companies of prudentially regulated financial services groups;

- we now allow a one-notch negative adjustment when determining the potential ICR of certainbank subsidiaries that we rate above the GCP; and

- we have widened the scope of analytical adjustments to rate a core group member of an FIgroup up to two notches above the relevant foreign currency sovereign rating based on uplift forgroup support.

98. The potential rating impact of the new criteria on issuer credit ratings differs by sector.

99. The criteria could lead to modest credit rating actions on no more than about 2% of ratings in theinsurance sector, with more upgrades than downgrades. The potential rating actions are mostly



due to changes relating to rating issuers above the sovereign rating. Other, mostly single-notchrating actions, will mostly result from greater scope for analytical adjustments in the criteria.

100. The criteria could lead to modest issuer credit rating actions in the corporate and infrastructuresector, where we anticipate rating actions for about 1% of the rated universe. We expect a morepronounced rating impact in the infrastructure sector in particular, where we anticipate ratingactions for up to about 4% of those entities. The clear majority of anticipated rating actions in thecorporate and infrastructure sectors will be limited to an upgrade of one notch and primarily in theregulated utilities sector, where we have changed how we assess insulation that is sufficient for apotential ICR that is one notch higher than the GCP.

101. The criteria could lead to extremely modest (under 1%), and mostly positive rating actions in thefinancial institutions sector. Where rating actions will occur, we anticipate that they will be mostlylimited to upgrades and downgrades of one notch as a result of greater scope for analyticaladjustments in the criteria.

102. We do not expect the criteria to affect the ratings on U.S. public finance and international publicfinance entities.

RELATED PUBLICATIONS

Superseded Criteria

- Group Rating Methodology, Nov. 19, 2013.

Related Criteria

- Insurers Rating Methodology, July 1, 2019

- Guarantee Criteria, Oct. 21, 2016

- The Impact Of Captive Finance Operations On Nonfinancial Corporate Issuers, Dec. 14, 2015

- Methodology: Investment Holding Companies, Dec. 1, 2015

- Bank Rating Methodology And Assumptions: Additional Loss-Absorbing Capacity, April 27,2015

- Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015

- Corporate Methodology, Nov. 19, 2013

- Ratings Above The Sovereign--Corporate And Government Ratings: Methodology AndAssumptions, Nov. 19, 2013

- Methodology: Timeliness Of Payments: Grace Periods, Guarantees, And Use Of 'D' And 'SD'Ratings, Oct. 24, 2013

- Assessing Bank Branch Creditworthiness, Oct. 14, 2013

- Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012

- Guarantee Default: Assessing The Impact On The Guarantor's Issuer Credit Rating, May 11,2012

- Banks: Rating Methodology And Assumptions, Nov. 9, 2011



- Principles Of Credit Ratings, Feb. 16, 2011

- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010

Related Guidance

- Guidance: General Criteria: Group Rating Methodology, July 1, 2019

This report does not constitute a rating action.

These criteria represent the specific application of fundamental principles that define credit riskand ratings opinions. Their use is determined by issuer- or issue-specific attributes as well as S&PGlobal Ratings assessment of the credit and, if applicable, structural risks for a given issuer orissue rating. Methodology and assumptions may change from time to time as a result of marketand economic conditions, issuer- or issue-specific factors, or new empirical evidence that wouldaffect our credit judgment.



Contact List

ANALYTICAL CONTACTS ANALYTICAL CONTACTS ANALYTICAL CONTACTS

Craig A Bennett

Melbourne

(61) 3-9631-2197

[email protected]

HongTaik Chung, CFA

Hong Kong

(852) 2533 3597

[email protected]

Dan Picciotto, CFA

New York

(1) 212-438-7894

[email protected]

ANALYTICAL CONTACTS CRITERIA CONTACTS CRITERIA CONTACTS

Ivana L Recalde

Buenos Aires

(54) 114-891-2127

[email protected]

Mark Button

London

(44) 20-7176-7045

[email protected]

Peter Kernan

London

(44) 20-7176-3618

[email protected]

CRITERIA CONTACTS CRITERIA CONTACTS

Nik Khakee

New York

(1) 212-438-2473

[email protected]

Yuval Torbati

RAMAT-GAN

(972) 3-753-9714

[email protected]













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Group Rating Methodology